Wednesday, September 24, 2008

FBI Investigating; Congress Questioning Bailout

*WSJ: FBI Probes Companies at Center of Crisis

"The Federal Bureau of Investigation's preliminary inquiries are focusing on whether fraud helped cause some of the troubles at Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc. and American International Group Inc., according to senior law-enforcement officials."

Lehman was allowed to go into bankruptcy, while F & F were bailed out on September 8, and AIG rescued on September 18. More here.

*Meanwhile, Morgan-Stanley and Goldman Sachs, the two remaining Wall Street Investment banks are no longer: they'll become bank holding companies, ending an era on Wall Street. Goldman, which was formerly headed by current Treasury Secretary Comrade Paulson, is seeking to raise $7.5B in Capital. They've gotten a gigantic boost from Warren Buffett, the Oracle of Omaha, who will give $5B. The market goes where Buffett goes in times past. But this $5B ain't cheap. Read more here.


*NYT: Buyout Plan for Wall Street Is a Hard Sell on Capitol Hill

"What they have sent us is not acceptable,” the Banking committee chairman, Senator Christopher J. Dodd, Democrat of Connecticut, told The Associated Press.

The panel’s ranking Republican agreed. “We have to look at some alternatives,” Senator Richard C. Shelby of Alabama told The A.P.

The text of Treasury Secretary Comrade Hank Paulson's remarks is here.
The text of Federal Reserve Chairman Comrade Ben Bernanke's remarks is here.

Both of these texts give background on the crisis, as if the members of Congress need to once again be briefed. Perhaps they do.

*Why is Congress dubious? Perhaps they've read the 14 Questions for Paulson & Bernanke over at The Big Picture.

*NYT: Housing Experts Say Bailout Proposal May Do Little for Homeowners

"The Treasury secretary has put top priority on bailing out financial institutions by buying up soured mortgages and mortgage-backed securities, so banks and other lenders can clean up their balance sheets and get back to normal lending."

"But Democrats are insisting that the Treasury Department also help restructure many of those loans, by lowering the interest rate or the loan amount, to make the mortgages affordable and reduce the number of people who lose their homes through foreclosure." Read more here.

*Bloomberg News: Paulson Says Credit Crisis Spreads, Hurting Economy

"Paulson acknowledged the burden taxpayers would bear from bailing out banks, while arguing inaction would make things worse. His proposal calls for increasing the U.S. debt ceiling to $11.315 trillion from $10.615 trillion." "Debt ceiling" is the national deficit that will be left behind by W.

Additionally, Paulson says it would be "a grave mistake" for Congress to act slowly, or to give him and Comrade Bernanke less than the $700B they have requested. Read more.

"You ask me about whether taxpayers being on the hook,'' he said. "Guess what, they're already on the hook.''

*Home Prices Declining:
More on this in a forthcoming post, with some easy math, some handy-dandy charts, and some chilling percentages.

2 comments:

Matt S. said...

Thanks for all your great reporting (not that I personally need it, I have been reading this stuff everyday this year).

The only good news now is that the American people are flooding their representatives with calls opposing this bailout, jamming switchboards and filling up voicemail.

MAKE SOME CALLS AND KEEP THE PRESSURE ON!

If you are uncertain about whether the bill is a good idea ('we can't let the banks fail'), consider this:

The #1 long-term issue here is the 'Full Faith and Credit of the United States Government'. The biggest threat to the US economy is that investors will pull their money out and they are just about fed up now. On Friday and Monday the dollar dropped dramatically, and crude oil rose 20% on news of the national debt ceiling being raised for the bailout and confirms those feelings.

For example:

``The image of U.S. Treasuries as a safe haven has been tainted by the ongoing financial debacle,'' said Kwag Dae Hwan, head of global investment in Seoul with South Korea's $220 billion National Pension Fund, which holds about $14 billion of U.S. government debt. ``A big question mark hangs over whether the U.S. can deal with an unprecedented amount of debt. That is unnerving all the investors, including me.''

To keep investors in the dollar, Treasury will have to RAISE RATES to attract them. The long bond increased from a low of 3.250% last Tuesday to a high of 3.904% on Monday and is currently around 3.8%. The 'spread' that banks add on for mortgages are back over 6.5% and Wells Fargo is now charging over 9% for jumbo loans!

If Hank crashes the dollar watch gasoline and food skyrocket, along with every imported good on the shelf at Walmart.

What is more, Paulson included in the proposed bill a clause, Section 8, that gives him immunity from ANY review by courts or regulatory agencies. He will have authority to spend $700B wherever and however he wants with no oversight. This is not just a bailout, IT IS A COUP!

"It reads [section 8], in its entirety:

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

Get on the phone TODAY and make some calls please:

http://www.house.gov/goode/contact.shtml

http://webb.senate.gov/contact/

http://warner.senate.gov/public/index.cfm?FuseAction=Contact.ContactForm

Note that Rep. Goode is against the bill, so you can keep it short. Sen. Webb on the other hand needs to be hammered on. Not sure of Warner's position.

End-of-Message - CALL NOW!

Thank you.

.............

http://ftalphaville.ft.com/blog/2008/09/24/16288/another-way-the-paulson-plan-is-hurting-main-street/

Mark said...

Some pertinent facts:

1. Nobody elected Henry Paulson or Ben Bernanke.
2. Henry Paulson was CEO of Goldman Sachs about two years ago.
3. Executive compensation represents about .00000001% of $700B, but represents 50% of what our presidential candidates talk about.
4. There is nothing in the Constitution giving us the right to have a 3500sf house and two new cars if we can't really afford them.
5. The deficit has nearly doubled under Dubya.
6. The cost of the "stimulus checks" we all got in the spring was $146B, and went right on top of the deficit.
7. I got a 42" plasma at Crutchfield with my stimulus check.